A credit rating agency is a company which intends to engage in or is so engaged primarily in the business of evaluation of credit risk through a recognized and formal process of assigning rating to present or proposed loan obligations of any business enterprise. To regulate the Credit Rating Companies in Pakistan, the Federal Government has framed the Credit Rating Companies Rules, 1995 which deals with the registration licensing and other requirements which have to be followed by Credit Rating Companies.
There’re only two licensed credit rating companies in Pakistan:
- JCR-VIS Credit Rating Company Limited
- Pakistan Credit Rating Agency(PACRA)
Rules & Regulations for Credit Rating Agencies in Pakistan
The following rules & regulations should be followed by the credit rating companies companies for their operations:
- The Commission may, if it is satisfied that it is necessary or expedient so to do in the public interest or in the interest of capital market, by order in writing, give a direction(s) to a credit rating company and such directions should be followed by the Credit Rating Company.
- Every credit rating company shall submit to the Commission a report giving sector-wise details of credit rating notified during the year, fee structure and any other information, as may be specified by the Commission in writing from time to time, within four months of the close of its accounting year. For the purpose of this sub-rule the expression “credit rating” means formal evaluation of credit history of the company and capability of repaying its obligations.Without prejudice to the above, a credit rating company shall furnish to the Authority such other documents, information or explanation relating to its affairs as the Authority may, at any time, by order in writing, require.
- No director of the credit rating company shall be a director of a corporate entity or a business firm or a share holder holding 5% or more of any corporate entity or business firm or in any other way interested in such an entity subject to rating by the rating company. This restriction shall not apply to a director of a rating company nominated as a director of an entity by the Federal Government or a Provincial Government or an institution which is directly or indirectly owned or controlled by the Federal Government or a Provincial Government. The director of the rating company shall inform the Commission of such nomination within fifteen days of the receipt of rating mandate from such entity together with an undertaking that he shall not participate in the rating process of that entity.
- Neither any change in the shareholding of a rating company shall be made nor the chairman and chief executive of a rating company shall be changed without prior approval of the Commission, in writing.
- The Commission may, after expiry of the minimum period of five years as required under Point 6.2 stated above, order cessation of the applicability of the provisions of the stated point to a credit rating company, where the Commission is of the opinion that it would be in the interest of capital market so to do.
- No director, officer or employee of the credit rating company shall communicate the information, acquired by him for use for rating purposes, to any other person except where required under law to do so.